Archive – 2020
European Regulatory Review Panel Concerned With Digital Markets Act
Report from Reuters
In Brief – The European Regulatory Scrutiny Board, which reviews policies and legislation proposed by the European Commission, raised serious concerns with the Digital Markets Act before signing off on the proposal. The Board challenged the lack of clarity in identifying the platform services that will be covered by the DMA’s regulatory regime, including failing to identify evidence of what determines persistent misuse of gatekeepers’ power to harm dependent business users and customers, as well as questioning whether the negative consequences of curtailing the benefits of platform economies of scale will have on consumers was appropriately accounted for.
Context – The Digital Markets Act is the EU’s landmark regulatory effort to address digital platform competition concerns. While the size thresholds to determine which platforms will be governed by the most stringent regulations are not clear, they are expected to be set high enough to mostly impact US-based companies, like the EU’s proposed Digital Services Taxes would. However, Dutch-based Booking.com expects to be in scope for the DMA and has been very critical of the massive regulatory proposal.
ACCC Rejects the Google Concession Offer on FitBit Acquisition
Report from the Sydney Morning Herald
In Brief – In contrast to the recent decision of the European Competition Authority, the Australia Competition and Consumer Commission (ACCC) has rejected the platform giant’s concessions offer on the company’s $2.1 billion purchase of fitness wearables business FitBit. Google made a decade-long commitment to wall off FitBit health data from advertising and maintain Android interoperability for wearables and fitness app companies. The ACCC release questioned its ability to effectively enforce the long-term behavioral commitments “in such a complex and dynamic industry” and announced that it would make a final decision by March 25, 2021.
Context – Google’s FitBit bid has been the highest profile digital acquisition fight of 2020, raising strident opposition from privacy advocates, consumer groups and fitness app developers. The EU regulator appeared to be playing the role of lead antitrust agency and approved the Google package after months of back-and-forth, noting in the end that FitBit was not the fitness wearables market leader and there were other very robust competitors. After the ACCC chose a different direction than the EU, the ongoing investigations in the US, Japan and Brazil take on heightened significance.
Irish Data Authority Fines Twitter in First Big GDPR Digital Platform Case
Report from the Wall Street Journal
In Brief – After nearly two years of investigation, and a lengthy and contentious review by a collection of Member State data protection authorities, the Irish Data Protection Commission (IDPC) has imposed a 450,000 euro (approximately $546,000) fine on Twitter, for failing to document or properly notify the regulator within 72 hours of learning of a data breach that occurred in December 2018 exposing some users’ private tweets. The final fine, after review by the full European board, was more than twice the initial Irish recommendation, but fell millions of euros below what some Member State authorities wanted.
Context – Many privacy advocates expected the landmark GDPR to lead to major penalties being imposed on large tech companies, forcing wholesale changes. That has not happened. Many blame the GDPR’s “One-Stop Shop” policy, which establishes the data protection authority for a business’s European Headquarters as the company’s primary privacy regulator across Europe. That means Ireland or Luxembourg for many of the biggest platforms. This IDPC case, the first in a line facing big U.S. tech companies based in Ireland, resulted in five months of squabbling with other EU data counterparts over jurisdiction, scope and the amount of the fine.
Digital Companies Refining Their Views on Section 230 Reform
Report from the New York Times
In Brief – After months of criticism of core Internet liability provision Section 230 of the Communications Decency Act, digital industry leaders have begun to express a willingness to reform the law, while still aggressively defending it against calls for repeal. The CEOs of Facebook and Twitter have expressed support for some changes to the law focusing on transparency in platform rules, processes and enforcement. In addition, a group of mid-size digital platforms, including Snap, Reddit and Tripadvisor, have created The Internet Works coalition to communicate their views to policy leaders on the issue.
Context – Criticism of Section 230 is bipartisan in that Republicans and Democrats are angry at the largest social media platforms and Sec. 230 is a target, but the specific charges are so different that there is little bipartisan agreement on major changes. In the face of President Trump reiterating his call to repeal Sec. 230’s as part of the National Defense Authorization Act to punish the social media platforms for anti-Trump election interference, Speaker Nancy Pelosi (D-CA), who has called for its repeal in the past, shifted her position to the law needing to be revised not repealed due to its importance to smaller platforms.
The European Competition Authority Finally Approves Google’s Acquisition of FitBit
Report from Reuters
In Brief – After a year of back-and-forth between Google and the European Competition Authority (ECA) over concessions needed to win approval of the company’s $2.1 billion purchase of fitness wearables business FitBit, the agency has accepted the decade-long commitments of the digital giant to wall off the health data from advertising and maintain Android interoperability for other wearables and fitness app companies.
Context – The FitBit acquisition took the temperature of a major competition regulator on two big questions. Would they go beyond traditional antitrust analysis to shut down an acquisition based on the contention that a platform was just too big with too much data? And would health-related personal data be a special privacy trigger? While privacy and consumer groups vociferously argued both points, Google prevailed, with the regulator noting that FitBit was not a market leader and there were other robust competitors. The deal could still face scrutiny in the US, Australian or Japan, but the EU was expected to be the key forum.
Federal Trade Commission Opens Study on Social Media and Streaming Data Practices
Report from CNBC
In Brief – The Federal Trade Commission (FTC) is requiring nine social media and video streaming companies to share data on how they collect and use data as part of their advertising and user-engagement practices, including how their data practices impact children and teens. Amazon, ByteDance (TikTok), Discord, Facebook and its subsidiary WhatsApp, Reddit, Snap, Twitter and Google (YouTube) have been given 45 days to respond to the agency’s orders. The FTC is taking the action under authority to conduct wide-ranging studies that do not have a specific law enforcement purpose.
Context – A more aggressive FTC on digital policy matters is likely to be a meaningful impact of the transition to a Biden Administration. The FTC was marked by a series of partisan 3-2 decisions on major digital economy cases in recent years, with dissents from the two Democratic commissioners decrying the lack of redress, weak (or non-existent) financial penalties or admission of wrongdoing, including on cases involving Facebook (Cambridge Analytica), Google (YouTube COPPA violations), Zoom and Sunday Riley Skin Care.
Simmering Apple-Facebook Feud Bursts Into Flame and Could Recast Major Policy Fights
Report from the New York Times
In Brief – Apple and Facebook’s long-simmering feud has erupted and appears to be leading the two mega-platforms into direct conflict on public policy fights. Apple’s CEO has criticized Facebook’s advertising-based business model for years as anti-consumer and anti-privacy. Facebook’s CEO has challenged the idea that advertising-subsidized services for consumers are less virtuous that selling expensive consumer devices. The immediate trigger is an upcoming change in Apple’s mobile operation system to require apps to get user permission to access a unique identifier used to facilitate targeted advertising on Apple devices. Apple defends the policy on privacy grounds. Facebook and others in the digital advertising ecosystem criticize the move as harming the value of advertising and undermining competition as Apple has other ways to track users. Facebook has ramped up their public criticism, arguing the move will hurt its small business ad customers. Facebook has also said it will contribute its views to the Epic Games antitrust lawsuit against Apple and support the EU’s Digital Markets Act effort to rein in the authority of mobile operating system and app store giants, which basically means Apple and Google.
Context – The Facebook-Apple feud plays into three big trends. First is the growing tension between digital ad industry competition concerns and privacy concerns. Google has faced similar charges as Apple regarding proposed changes to third-party cookies in the Chrome browser and plans to move DNS queries to encrypted HTTPS protocol. Second, the legal and regulatory fight over mobile operating systems and app store policies is dividing even the super giants, with Apple and Google on one side and Facebook and potentially Microsoft lining up on the other with big developers like Epic Games and Spotify. Finally, Facebook speaking positively about the highly-regulatory gatekeeper model outlined in the EU Digital Markets Act as protection from Appple could drastically shake up that debate.
Google’s State Attorneys General Antitrust Lawsuits Stacking Up Like Holiday Packages
Report from the Wall Street Journal
In Brief – Like long-expected packages arriving the days before Christmas, two coalitions of State Attorneys General have filed antitrust complaints against Google, adding to the Department of Justice (DoJ) complaint filed in late October. The first (here) comes from 10 Republican AGs led by Texas AG Ken Paxton (R) focused on Google’s conduct in the digital advertising market, including a relationship with Facebook the plaintiffs’ claim undermines user privacy and was intended to foreclose advertising competition. The second (here) is from a bipartisan group of 38 AGs led by Colorado AG Phil Weiser (D), Nebraska AG Doug Peterson (R), and New York AG Letitia James (D). It is focused on Google’s dominant Internet search engine and allegedly anticompetitive conduct aimed at specialized “vertical” search businesses. The DoJ-led suit is focused allegedly anti-competitive efforts by Google to prevent alternative search engines from gaining meaningful scale and traction, in particular highlighting Google’s business deals with Apple to be the default search engine on Apple devices and browsers. Google argues that there is abundant consumer choice in search, that it is easy to switch services, that large and emerging competitors are operating in the digital advertising market, and that prices have been consistently falling.
Context – While not as straightforward and bipartisan as the recent simultaneous filing of the Facebook antitrust suits from the Federal Trade Commission and also from a coalition of 48 State AGs, at this point the Federal Government and most State AGs are engaged in at least one antitrust case targeting Google. The initial DoJ complaint, which only recently gained a Democratic AG supporter, was seen by some as quite limited in scope. The combination of three now covers much ground, with the AGs digital advertising complaint mirroring inquiries in the UK and Australia, and the AGs vertical search complaint following a similar entreaty to the European Competition Authority by vertical search competitors.
UK Considering VAT Tax Collection for All Platform-Enabled Independent Workers
Report from The Guardian
In Brief – The UK Treasury has opened a consultation into eliminating the current 85,000 GBP threshold for small independent workers that use digital platforms to bring them into the UK’s VAT (“Value-Added Tax”) system. The focus is on short-term accommodation, passenger transport, household and professional services, and platform like Uber, Airbnb, TaskRabbit and Upwork. Currently, people who earn less than 85,000 GBP are exempt from the UK’s 20% VAT regime. They neither charge VAT nor deduct all the VAT applied to any goods or services that they purchase as part of their micro business. The threshold is based on the belief that individuals engaged in small scale side-jobs, freelancing or renting space should be free to work without the compliance bureaucracy. As more people engage in independent work facilitated by platforms, the Treasury is concerned about the revenue implications of VAT-free services and the prospect of micro-providers edging out larger enterprises. The consultation also asks for input on cross-border issues, both for non-UK digital platforms and non-UK freelancers selling services.
Context – Despite happy talk from public officials globally about digital tools supporting small businesses, one policy reality is a march toward expanding tax duties to protect tax revenue and business incumbents. Whether consumption or income taxes, thresholds are being reduced or eliminated in the name of fairness, lest the smallest actors get an edge. This is especially true for taxing cross-border ecommerce. Australia led the way, and the EU and UK are following on. The concept of digital “virtual presence” has untethered government taxation from traditional principles linking taxes to local operations, and underpins the whole range of digital tax efforts. The US Supreme Court backed the idea in the landmark digital taxation Wayfair decision. And digital platforms are being conscripted into tax and compliance duties, both domestic and cross-border, in too many markets to list here.
MA Governor Rejects Police Reform Bill Banning Law Enforcement Facial Recognition
Report from TechCrunch
In Brief – Massachusetts Governor Charlie Baker (R) has sent a major police reform bill back to the state legislature and asked for the removal of several provisions, including one for a landmark statewide ban on police using facial recognition technology. Initially drafted in response to the mid-year racial justice protests, the legislation also banned police from using chokeholds, rubber bullets and tear gas. The final negotiations overcame months of deadlock but did not bring margins that would override a veto. Gov. Baker defended facial recognition for the “important role it can play in solving crime” and claimed it has helped law enforcement catch a child rapist and an accomplice to a double murder. Critics have long charged that facial recognition technology is flawed, biased and disproportionately misidentifies people and communities of color. In June, Boston’s city councilors unanimously voted to ban the use of facial recognition technology by municipal authorities, making it the sixth city in Massachusetts to enact such a ban and the second-largest city in the world behind San Francisco.
Context – Facial recognition is one of the most controversial “AI” technologies because recent advances have taken the tech from theoretical into the real world. It is a central feature of the Chinese Government surveillance regime raising widespread and bipartisan concerns. In the U.S., concerns over discriminatory aspects of the technology has led tech giants IBM, Amazon and Microsoft to halt sales of the services to law enforcement. Sen. Ed Markey (D-MA) and House Members Ayanna Pressley (D-MA) and Pramila Jayapal (D-WA) have sponsored legislation to ban the use of facial recognition by federal law enforcement agencies and Sen. Jeff Merkley (D-OR) has proposed a moratorium on all federal agencies until a comprehensive federal policy is in place. Civil liberties and privacy advocates have announced their intentions to press the Biden Administration to impose stricter rules on federal agencies.
Europe Finally Releases the Massive Digital Services Act Package to Regulate Platforms
Report from the Washington Post
In Brief – The European Commission finally unveiled the Digital Markets Act (DMA) and the Digital Services Act (DSA), an unprecedented effort to rewrite the rules governing the digital economy. The DMA is designed to address competition concerns. The DSA aims to compel better policing of harmful online content. The DMA is built around the key digital “gatekeeper” determination based on the number of users, revenues and market capitalization. It is not clear exactly who would be covered. But once they are, gatekeepers will face a wide range of obligations, including prohibitions on preventing business users from offering better prices on other channels, or forcing a company to pay for one service as a condition of using another platform, and new requirements including providing price transparency, data portability, and limitations on self-preferencing. The DSA is focused on content moderation. It reinforces the liability principle that platforms are not liable for users’ unlawful behavior unless they are aware of illegal acts and fail to remove them. However, all digital platforms will now face uniform obligations to address harmful and illegal content appearing on their services. Unlike the DMA’s nebulous “gatekeeper” threshold, the DSA designates platforms with 45 million or more users in Europe as large platforms. They will face an additional set of transparency, policing and regulatory oversight requirements, as well as yearly external audits and, if they fail to address issues, fines of up to 6% of turnover.
Context – While mentioned in the same breath as the recently filed antitrust cases in the US targeting Google and Facebook, the DMA and DSA are major regulatory expansions aimed at government corralling and directing digital giants long term, not breaking them up. The UK’s intention to create a Digital Markets Unit to regulate platforms is similar. Add in proposals to expand the taxation of large digital platforms through Digital Services Taxes and old school conservatives might sense a trend.
California Joins Federal Antitrust Suit Against Google – First State with Dem AG
Report from Politico
In Brief – California became the first state with a Democratic Attorney General to join as a party to the antitrust complaint filed by the US Department of Justice (DoJ) the week before the election. Eleven State AGs, all Republican, initially joined the DoJ effort targeting Google for a range of anticompetitive actions aimed at protecting their dominant search business, leading some to raise concerns that partisan differences had undermined cooperation in the weeks approaching the election. In recent weeks, New York Attorney General Letitia James (D) has announced that a bipartisan coalition of seven State Attorneys General — Colorado, Iowa, Nebraska, North Carolina, Tennessee and Utah — continuing to engage in investigations of Google. It has been speculated that they would file a separate complain in the coming weeks, potentially with a focus on Google’s advertising business, likely move to consolidate their case with the federal effort.
Context – State Attorneys General banded together last fall to cooperate on antitrust investigations of Google and Facebook. Both coalitions grew to nearly 50 strong. While the Google fractured with partisan divisions before the election, the coalition investigating Facebook came together in early December with a pair of antitrust complaints, one from a coalition of 48 State AGs, and one by the Federal Trade Commission (FTC). Both suits (State AG here, and FTC here) allege that Facebook has engaged in illegal behavior to protect their dominant position in social networking, in particular through the acquisitions of Instagram and WhatsApp. California’s Attorney General, Xavier Becerra, is President-elect Biden’s pick for the Secretary of Health and Human Services. His joining the DoJ Google suit may indicate that the Biden Administration has signed off. There is also speculation his move might help win over support for his confirmation from Republican Senators upset with Google policies.
Europe Releases Massive Digital Services Act Package of Platform Regulations
Special Report from PEI
In Brief – The European Commission has unveiled the Digital Markets Act (DMA) and the Digital Services Act (DSA), an unprecedented effort to rewrite the rules governing the digital economy. The DMA is designed to address competition concerns caused by large digital platforms and is expected to have the greater economic impact. The DSA aims to compel digital platforms to better police harmful online content such as hate speech, terrorism advocacy and child exploitation. The European Parliament and EU national governments will have a chance to amend the laws in a process that could take two years before final versions are adopted.
The Digital Markets Act –
The DMA sets out a list of prohibitions and obligations imposed on digital “gatekeepers,” meaning platforms deemed to have a significant impact on the market. This key determination will be based on factors such as the number of users, revenues and market capitalization, and the concept of being “entrenched” in its status. It is not clear which platforms will be covered, nor which of the commission’s internal departments with determine or oversee them.
Gatekeeper firms will face a range of obligations. “Black-list” practices are prohibited. These include requiring users to accept the combining of data from across different platforms, preventing business users from offering better prices via other channels, or forcing a company to pay for one service as a condition of using another platform. Other requirements include providing price transparency for small business customers, allowing data portability, and informing the commission of any acquisitions. Finally, there are rules more open to interpretation, such as a ban on self-preferencing or using data collected in one business to compete in another market. In such cases, gatekeeper firms will be able approach the regulator with an implementation plan and ask for approval.
The Digital Services Act –
The DSA reinforces the core intermediary liability principle that platforms and other intermediaries are not liable for users’ unlawful behavior unless they are aware of illegal acts and fail to remove them. It harmonizes the rule across the EU. However, all digital platforms will now face uniform obligations to address harmful and illegal content appearing on their services. In addition, large digital platforms, those with 45 million or more users in Europe, will face a full set of transparency, compliance and regulatory oversight requirements.
All platforms, including those based outside the EU, will be required to take measures to counter illegal goods, services or content online. These include adopting mechanisms for users to flag objectionable content and cooperate with “trusted flaggers”, the ability to trace business users in online marketplaces to identify sellers of illegal goods, providing a range of safeguards to users, including the ability to challenge content moderation decisions, and transparency into advertising.
Large platforms face a host of compliance duties. They are required to assess systemic risks stemming from the use of their services and take steps to mitigate those risks. The three categories of systemic risk are the spread of illegal content, the use of a platform to undermine citizens’ fundamental rights, and intentional manipulation of a platform to negatively impact public health, civic discourse, electoral processes, public security or the protection of minors. Large platforms will need to name a lead compliance officer, and provide regular public reports on efforts to remove illegal content, access to data to “vetted researchers”, a user code of conduct, and transparency into recommendation algorithms. They will also face yearly external audits and, if they fail to address issues, fines of up to 6% of turnover.
Finally, the DSA proposes a new regulatory role for EU governments, including the naming a national Digital Service Coordinator (DSC) to regulate home country platforms, make requests of other DSCs and serve on a new European Board for Digital Services, an advisory group for the EU executive.
Indonesia Expresses Support for Digital Services Tax Absent International Agreement
Report from Reuters
In Brief – While European governments led by France and the UK have been most outspoken in calling for Digital Services Taxes (DST) to require digital companies to pay more corporate taxes in countries where they have more users, rather than where they conduct business operations, interest is increasingly global. Indonesia, Southeast Asia’s largest economy, is now indicating that it will add to the trend and look to institute a new corporate DST if nations fail to agree on a coordinated approach to digital taxation. Indonesia already expanded taxation of the digital economy in 2020 by imposing a 10% VAT on digital products and services, including software, streaming, communications, social media, applications and games, with collection duties for domestic and non-resident companies. While the government indicated at that time that they would wait for international consensus before moving on digital corporate tax changes, that is no longer necessarily the case.
Context – The global battle over corporate digital tax rules could be the digital issue most impacted by the shift to a Biden Administration. Many governments want to increase taxes paid in countries based on Internet users not business operations. That means less paid to the US Treasury or more corporate taxes overall. While opposition to national DSTs is bipartisan in Washington, the willingness of the Trump Administration to threaten trade retaliation, including with allies, was key to delaying DSTs from going into effect. While all sides claim to want a multilateral tax deal, the soonest would be mid-2021, and then countries would still need to change their national tax laws. Whether a Biden Administration that is looking to restore traditional foreign relations will match the Trump Administration’s anti-DST intensity or trade war threats is a big question. In light of some national digital taxes coming on-line, Amazon, Google and Apple have begun announcing in-country tax-related fee increases.
FTC Finalizes Sunday Riley Fake Online Reviews Settlement on Another Partisan Vote
Report from the Houston Business Journal
In Brief – On a partisan 3-2 vote the Federal Trade Commission (FTC) finalized its settlement with Houston-based cosmetics firm Sunday Riley Modern Skincare disciplining the company and its CEO for a multiyear program of manipulating and faking online reviews, in particular by having employees regularly place reviews online without identifying connection with the company. The settlement did not include an admission of wrongdoing or impose any financial penalty, but does bar the company from engaging in the practice for twenty years. The two Democratic Commissioners strongly dissented from the agreement for failing to provide redress, any disgorgement of ill-gotten gains or admission of wrongdoing, charging that the Commission majority was sending the message that there are no real consequences for online disinformation and fake review scams. The Majority argued that determining a legally defensible calculation of ill-gotten gains would be difficult and expensive and substantially outweigh benefits to consumers or the market.
Context – A meaningfully more aggressive FTC might be another impact of a Biden Administration. The Sunday Riley settlement adds to a series of 3-2 decisions at the FTC on digital cases where the two Democratic Commissioners criticized the Republican majority for insufficiently robust settlement terms – the Facebook settlement over Cambridge Analytica (Republican statement here, Democratic dissents here and here), the Google settlement over YouTube COPPA violations (Republican statements here and here, Democratic dissents here and here), and a recent settlement with Zoom over deceptive privacy and data security practices (Republican statement here, Democratic dissent here and here), where like in this Sunday Riley case, the minority decries the lack of redress, financial penalties or admission of wrongdoing.
Another Court Recognizes Logistics Means Amazon Not Just a Marketplace for Liability
Report from Bloomberg Law
In Brief – Judge Edgardo Ramos of the Federal District Court for the Southern District of New York will allow a product liability case to move forward against Amazon for harm to a consumer who purchased a food item on the Amazon Marketplace that was sold by third-party seller but stored and handled by Amazon’s FBA logistics system. The plaintiff, Angela Brodie, was sickened by a main ingredient in a food item involving a kind of alternative noodle. In his order (copy here), Judge Ramos rejects Amazon’s motions to dismiss for the charges related to negligence and breach of an implied warranty arguing that because the products were physically stored and handled in FBA, it could do an “ordinary” or “reasonable” inspection of the good’s external packaging like a retailer with products on their shelves. On the other hand, Ramos dismissed the charges that were based on Amazon’s role as a marketplace, such as from buyer feedback or being responsible for the seller’s product description.
Context – Amazon is unlike other digital marketplaces. It is the dominant player in the physical infrastructure business of logistics through its massive ecommerce fulfillment center network that holds the goods for most top sellers on its marketplace. A recent logistics industry report estimates Amazon’s market share in ecommerce fulfilment center services at 60%, exceeding their 50% share of the public cloud market and its approximately 40% share of ecommerce retail. Amazon’s logistics business, for all its use of robotics and digital tracking, involves hundreds of thousands of facility center stockers and pickers, and is increasingly the subject of labor organizing. Amazon marketplace policies to pressure sellers to use its logistics services is now also the subject of an antitrust investigation in Europe. Finally, like in the Brodie case, the California Court of Appeals recently ruled in Bolger v Amazon that the company could face product liability charges like a retailer when the product was also handled by FBA.
Australia Finally Tables Bill Forcing Google and Facebook to Pay Big Media Companies
Report from The Guardian
In Brief – In Australia, where the Federal Government has been aggressively pressing forward for more than a year to address the alleged competitive and financial imbalance between platform giants Google and Facebook and the country’s media companies, legislation has finally been tabled in parliament to force the digital giants to negotiate financial compensation for news organizations when their content appears in Facebook’s newsfeed and Google’s search results. If the platform giants and media companies do not come to agreements (and talks earlier this year proved fruitless) the News Media Bargaining Code mandates government arbiters impose rates on the companies. Facebook has said that it is prepared to block Australian Facebook users from sharing links to media stories rather than pay for user links, and Google has publicly criticized a range of non-financial aspects of the draft plans related to providing larger media companies with special access to Google search ranking algorithms, claiming the scheme could give larger content companies preferential search benefits over small content creators.
Context – News media businesses in markets globally blame Internet businesses for undermining their traditional advertising-based business model and are rallying around proposals to require large platforms, especially Google and Facebook, to pay them directly when digital content they create gets shared on their platforms. Along with Australia, France is most out front on this mandatory media payments effort. The two giants have initiated “voluntary” media content curation and payments initiatives, with Google announcing a $1 billion initiative in October that followed the Facebook News endeavor announced last fall that pays millions in payments to large media enterprises. Finally, in a major step beyond Google and Facebook, Apple is now in the crosshairs of the media industry in France with trade groups criticizing Apple’s App Store fees levels and policies.
Massive State AG Coalition and FTC Each File Antitrust Complaints Against Facebook
Report from the New York Times
In Brief – Two much-anticipated antitrust complaints targeting Facebook for anticompetitive conduct over nearly a decade have finally been filed in federal court, one by a coalition of 48 State Attorneys General, and one by the Federal Trade Commission (FTC). Both suits (State AG here, and FTC here) allege that Facebook has engaged in illegal behavior to grow and protect their dominant position in social networking and focus on Facebook’s acquisitions of Instagram (2012) and WhatsApp (2014), portraying them as illegal efforts to shutdown competitors. Both also allege a range of other anticompetitive practices in the intervening years. Facebook has been expecting these challenges for many months and has argued that competition is robust in the markets they operate in, whether from Google and Amazon in digital advertising, or TikTok in social media, which has exploded in popularity in recent years. In addition, they focus on the fact that the FTC approved the acquisitions of Instagram and WhatsApp and that the major growth in the services since then is more appropriately seen as a reflection of Facebook building them into successes, the purpose of the acquisitions in the first place, rather than an effort to stifle competition. Unwinding acquisitions well after the fact is a tall hurdle under antitrust law. The Republican Chairman of the FTC joined the two Democratic Commissioners in support of the federal suit, over the objection of the two other Republicans, while four Republican AGs chose to not sign on the state suit.
Context – “Digital surveillance” informing defensive “killer acquisitions” is one major concern expressed by antitrust reformers targeting the biggest tech platforms. Facebook has often neem the poster child due to Instagram and WhatsApp. It will now play out in court. For a preview, watch five minutes of House Antitrust Subcommittee hearing 4:27:20. Some argue that Facebook’s recent acquisition of Giphy, under review in the UK, Australia and US, fits the mold Facebook used with VPN app Onavo acquired in 2013.
Senate Republicans Confirm Social Media Regulation Supporter as Final Trump FCC Pick
Report from Washington Post
In Brief – The Republican-controlled US Senate has approved Nathan Simington to a five-year term as a Commissioner of the Federal Communications Commission (FCC) by a party-line vote. Simington’s nomination gained prominence in the weeks running up to the election in connection with President Trump’s repeated attacks on social media companies for anti-conservative bias in their content moderation practices, which included a Presidential Order calling on the FCC to engage in rulemaking clarify that Sec. 230 of the Communications Decency Act did not permit digital platforms to moderate public policy-related user content. After Republican FCC Commissioner Michael O’Rielly publicly questioned the role of the FCC regulating online speech, his nomination to a second term was abruptly withdrawn by the Trump Administration. He was replaced by Simington, who supported linking Sec. 230 to the concept of ideological neutrality in content moderation, a position rejected by many FCC and telecommunications law experts due to the clear language of Sec. 230 to avoid federal regulation of Internet content.
Context – As much as the replacement of O’Rielly by Simington appears to have been linked to the FCC attempting to engage in Sec. 230 rulemaking, the issue is not likely to be on the agenda for the FCC under the Biden Administration. Democratic FCC Commissioners Rosenworcel and Starks both objected to Trump’s Sec. 230 order and it is expected that the new FCC majority will dismiss further agency action on the Section 230 regulation proceeding opened by soon-departing FCC Chairman Ajit Pai. On the other hand, a top FCC priority of the incoming Administration is expected to be restoring the 2015 net neutrality rules overturned by the Trump FCC in 2017, and some speculate that a Republican Senate might attempt to delay confirmation of a third Democratic Commissioner in 2021 for potentially months in order to stymie action with two Republican Commissioners blocking the two Democratic incumbents.
Under Regulatory Pressure Google Delays Play Store App Payments Change in Korea
Report from The Korea Herald
In Brief – Under pressure from Korean lawmakers, regulators and app developers, Google has announced that it will delay until October 1, 2021 its plans to charge a 30% fee on all payments for digital content and services made via apps in the Google Play Store. While Google has technically required apps in the Play Store to use Google’s payments service, it has not generally enforced the rule outside of gaming apps. Google initially announced in September that it would tighten its policy as of January 2021. In Korea, home of Android phone giant Samsung, Google’s Play Store captured greater than 60% of total app store sales last year, and the change caused widespread concern. The Korean Fair Trade Commission (KFTC) announced that it would open an investigation, lawmakers called on Google to follow Apple’s lead (see below) and cut fees to 15%, and a coalition of competition lawyers announced plans to submit an antitrust complaint to the KFTC.
Context – App store policies and fees are quickly facing scrutiny globally. There are millions of app developers dispersed globally but just two giant mobile platforms (outside China). Large companies are investing in legal, PR and regulatory campaigns to change platform policies and limit fees. Apple and Google both often charge 30%, but they otherwise have very different models. Apple’s very restrictive “walled garden” has been more in focus with US and EU regulators. They recently made an unprecedented change in policy to focus attention on the largest complaining businesses, announcing that developers earning less than $1 million in app revenues in 2020 will only pay 15% fees in 2021. While Google’s Android is a more open system, it has many more users globally and is dominant in markets like Korea and India. Android is reported to hold a 99% share in India, its fee change caused a similar negative reaction, and Google recently announced that that it would delay the change in India until April 2022.
CFIUS Lets the Latest Deadline for ByteDance to Sell TikTok to Pass Without Action
Report from Axios
In Brief – After setting a November 15 deadline for ByteDance to divest TikTok in the United States, the Committee on Foreign Investment in the United States (CFIUS) first granted a 15-day extension, and then an addition week, which passed on Friday, December 4 without resolution. CFIUS has the authority to review all acquisitions by foreign firms, including after the fact when not notified initially. It claims authority over ByteDance’s operations of TikTok in the US due to the company’s 2017 acquisition of video app Music.ly. CFIUS began a review of that acquisition in 2019 and released an order in August finding that TikTok threatened national security due to its US user data holdings. Rather than sell TikTok outright, ByteDance is reportedly hoping to establish a business arrangement with Oracle to house and control data on US users to allay security concerns, looking to CFIUS’s Genworth Financial decision as precedent.
Context – The effort to ban the WeChat and TikTok apps is an unprecedented manifestation of the digital decoupling between the US and China pushed by the Trump Administration. Federal Courts in California, Pennsylvania and DC have imposed a series of injunctions freezing the bans on the app operations. The WeChat injunction was granted largely on First Amendment issues. Federal judges in two circuits have granted injunctions blocking the TikTok bans based on limitations to the President’s authority under the International Emergency Economic Powers Act. On December 14, the Federal DC Circuit Court of Appeals will hear the DoJ appeal of the initial TikTok injunction granted by District Judge Carl Nichols. The CFIUS order to divest TikTok is based on different legal authority than the app bans. CFIUS interest in Chinese businesses holding US user data has been growing for years and its authority to address data concerns was expanded by Congress in 2018. ByteDance may simply hope to delay final action until the Biden Administration takes over CFIUS.
Canada Announces Plans to Enact a National Digital Services Tax Effective in 2022
Report from Reuters
In Brief – While Europe has been at the center of efforts to increase the taxes paid by digital companies in countries with large Internet user bases, rather than in countries where digital enterprises set up most of their business operations, the movement is global and growing. Canada is the latest country to announce plans for a new levy on digital services companies, with Finance Minister Chrystia Freeland announcing the government’s intention to enact a tax on digital services corporations to go into effect January 1, 2022. The government intends for the national tax, with details expected in the upcoming budget, to stay in place until major nations come up with a coordinated approach on corporate taxation through a multilateral plan at the OECD.
Context – Digital Services Taxes was the top PEI issue in 2020 and could be the one most significantly impacted by the shift to a Biden Administration. DST proposals aim to shift tax revenues from the US and smaller, lower-tax countries like Ireland, Switzerland, Luxembourg, and Singapore that are home to a large number of tech enterprises, toward larger consumer markets like the UK, France, Italy, and India. While general opposition to national DSTs is bipartisan in Washington, the willingness of the Trump Administration to engage in tariff trade wars, including with traditional allies, was key to delaying national DSTs from going into effect. While all sides claim to want a multilateral tax deal to avoid national DST chaos, the soonest that is likely is mid-2021, and then countries would need to change their national tax laws. Don’t plan on a Biden Administration that is looking to reinvigorate relationships with European allies to match the Trump Administration’s anti-DST intensity or trade war threats. In light of national digital taxes coming on-line in countries like France, UK, Italy and Turkey, Amazon, Google and Apple have begun announcing in-country tax-related fee increases.
The Facebook Content Moderation Oversight Board Announces First Six Cases
Report from The Hill
In Brief – After nearly two years of planning the independent Facebook content Oversight Board (OB), a sort of appeals body that allows Facebook users to get an outside review of company content removal decisions, has announced the first six cases it will review from among over 20,000 user submissions. Three involve violations of Facebook’s hate speech policy, one involved a violation of the company’s nudity policy applied to a post on breast cancer awareness, the only case from a US user involved the use of a quote from Joseph Goebbels, and one case was referred to the OB by Facebook itself, involving a Facebook group that claimed certain drugs could cure COVID-19. The Board’s short description of each case is posted here and allows for public comments to be submitted. The OB staff and board members are funded with a $130 million grant from Facebook. The company commits to abide by the OB’s decisions on specific cases but not necessarily to change overall content moderation policy.
Context – Content moderation is a huge challenge for digital platforms, and the political ramifications grow when a platform is especially large. The EU, France, UK, Germany, Australia, Turkey and others are proposing content moderation mandates. It is worth stepping back and noting there is nothing like this Facebook effort. It is bold and creative. Of course, scale is an immense challenge. This review of the initial Oversight Board docket sees the 20,000 cases filed as indicating how many users feel aggrieved by Facebook, instead of it being a reflection a community of nearly 1.7 billion people posting 72 million links and 216 million messages a day. Throw in political leaders, idealogues and advocates globally on a platform where a third of top stories are political. The current 20-person “Supreme Court” of Facebook (planned to grow to 40 members next year) includes five Americans and fifteen other nationalities, and promises deep dives into each case by Board teams of five that will take 90 days.
Public Release of Massive EU Digital Services Act Regulatory Package Again Delayed
Report from Ouest-France
In Brief – The European Commission’s top two leaders on digital policy, Commissioner Margrethe Vestager and Commissioner Thierry Breton, took to Twitter to announce that the public release of the Commission’s draft for the landmark Digital Services Act package of digital platform regulations and competition policy reforms will be released on December 15. (If you click on one the links you will see their respective tweet showing a short video of an Advent Calendar being opened on Dec. 15 revealing “DSA” and “DMA”. Seriously.) This is the second time the release has been pushed back a week, with the initial plan being December 2, then December 9. It is reported that the Digital Markets Act is the focus of the last-minute talks.
Context – The Digital Services Act package is an unprecedented effort to comprehensively rewrite the rules governing the digital economy, potentially globally. It will be delivered in two parts. The actual Digital Services Act (DSA) will cover platform liability, online “safety” and the duties of platforms to police objectionable content, both commercial and expressive. The Digital Markets Act (DMA) will aim to address competition in digital markets, focusing on “Large Online Platforms” (LoPs) that serve as digital “Gatekeepers”. It is expected to propose a range of new mandates and a new regulatory authority to police them, including a New Competition Tool and a catalog of problematic behaviors. The four GAFA mega-giants will clearly be in scope across the board, but how far the concept of Gatekeeper extends to other platforms, how that will be measured, and whether all DMA and DSA rules and obligations will kick in at one point, or case-by-case, are among the most important questions to be answered when the plans are released. The Commission will receive feedback from EU countries and the European Parliament before a final draft or drafts can be adopted, a process expected to take a year or more.
Coalition of State Attorneys General Expected to File Facebook Antitrust Suit Next Week
Report from Reuters
In Brief – A much-anticipated federal antitrust complaint from US State Attorneys General targeting Facebook is expected to be filed next week. Up to 40 US States are expected to join. State AGs banded together in the late 2019 in loose bipartisan coalitions to cooperate on antitrust investigations of Facebook and Google paralleling federal law enforcement investigations. Both coalitions grew to nearly 50 strong. NY AG Letitia James (D) was widely seen as leading the Facebook review while Texas AG Ken Paxton (R) was seen as the leader of the Google effort. When the US Department of Justice filed its antitrust complaint against Google two weeks before the election, just 11 State AGs including Paxton, all Republicans, joined on. Along with the State AG suit targeting Facebook expected next week, an FTC Facebook complaint, as well as a second major Google antitrust suit from additional State AGs, are reported to be coming soon. It remains unclear what the AGs will include in their Facebook complaint, although the social media giant’s acquisition practices have been the subject of much scrutiny.
Context – While the tech acquisition spotlight has been most focused on Google’s purchase of FitBit, the role of acquisitions in the growth and maintenance of dominant digital platforms is a broad concern of tech-focused competition policy reformers. “Digital surveillance” practices informing defensive “killer” acquisitions are drawing attention, and Facebook is often the poster child following their Instagram and WhatsApp deals. Democrats raised the issue in July’s U.S. House Antitrust Subcommittee hearing (watch for the five minutes starting at 4:27:20) and some argue that Facebook’s recent acquisition of Giphy, under review in the UK, Australia and the US, fits a mold like Facebook used with VPN app Onavo acquired in 2013. The Subcommittee’s digital markets report includes a range of merger policy reforms, some receiving positive feedback from Republicans.
Google Signs Payments Agreement with Six Top French News Media Companies
Report from Reuters
In Brief – After months of contentious bargaining Google has signed agreements with six major French newspapers and magazines, including Le Monde and Le Figaro, over how to apply revamped EU copyright rules to Google and have the search giant pay media companies when search results show extracts of their news. Google has consistently fought against the idea that it should pay publishers when its search engine provides links to their online content, contending that media websites benefit from the traffic brought by Google. The agreements with the six French newspapers are based on criteria such as the publisher’s contribution to political and general information, the daily volume of publications, and their monthly internet traffic. Agreements have not yet been reached with other major publishers, including the two main French press associations and the news agency AFP.
Context – Traditional news media businesses in markets globally blame Internet giants for undermining their advertising-based business model and are rallying around proposals to require large platforms, in particular Google and Facebook, to pay them for creating digital media content that gets shared online. Along with France, Australia is the other national government most out front on this media payments effort, but it will grow. In October, Google’s announced News Showcase, a news curation service backed by $1 billion that rolled out with 200 leading media partners across Germany, Brazil, Argentina, Canada, the U.K. and Australia. Top French media is now expected to join. Facebook News was announced in 2019 and reportedly pays millions in payments to large media enterprises for curated content. Finally, in a major step beyond Google and Facebook, Apple is now in the crosshairs of the media industry in France, with media group APIG contending that publishers are dependent on Apple for the distribution of their content on the iPhone and joining the chorus of complainants criticizing Apple’s App Store fees.
Progressive Groups Call on Biden to Exclude Big Tech Representatives from Administration
Report from Reuters
In Brief – A collection of 32 progressive public policy organizations, including consumer, labor and antitrust reform advocates, have signed a letter to President-elect Joe Biden urging him to exclude executives, lobbyists and consultants working for or with companies such as Facebook, Amazon, Google, Apple and Microsoft. The groups, led by Public Citizen and including the American Economic Liberties Project, Open Markets Institute, Progressive Democrats of America, and the Institute for Local Self-Reliance, condemn “Big Tech” as serious threats to privacy, democracy, innovation, and the country’s economic well-being. When the Biden-Harris Transition Team began announcing appointees to the specific agency teams on November 10, reports circulated claiming that numerous executives from technology companies were entering the new Administration, including from Amazon, Lyft, Uber, AirBNB and LinkedIn, and appeared to outnumber critics of the largest tech companies announced by the transition.
Federal Court Tosses Blix’s Antitrust Suit Against Apple Over App Policies
Report from Bloomberg
In Brief – In a federal lawsuit pitting email and messaging app developer Blix against Apple, which combined both antitrust charges and patent infringement allegations, the U.S. District Court for the District of Delaware has dismissed the antitrust claims against Apple without prejudice. Judge Leonard P. Stark concluded that Blix had failed to offer direct or indirect evidence of Apple’s monopoly power or anticompetitive conduct in violation of the Sherman Act. Blix has alleged that Apple copied patented messaging technology, then removed the developers’ BlueMail app from the App Store, and upon restoring the Blix app manipulated search rankings to suppress competing apps like Blix’s. Judge Stark added that allegations that Apple has the power to restrict competition is not equivalent to allegations that the company actually did restrict competitors, as well as noting that Blix’s antitrust charges were undermined by the company’s own claim that Blue Mail achieved success on multiple platforms.
Context – The Blix case offers insight into the challenges that app developers will face in trying to win federal antitrust lawsuits against Apple and Google over their app store policies. The highest profile cases are the lawsuits filed by mega-game developer Epic Games against both Apple and Google. Blix v Apple raised search ranking manipulation, preferential treatment of first-party apps, whether a company’s app store or operating system accounts for a separate market, and whether either company app store or operating system is dominant. The Blix result shows that these are meaningful hurdles in the current US legal context. The judge in the Epic v. Apple suit continues to raise the fact that all the game platforms, including the consoles, charge the same fee levels as Apple, pointing to similar hurdles. The EU’s expected Digital Markets Act may drastically change the legal environment there. Large developers like Epic and Spotify investing in public affairs campaigns likewise points to a regulatory Plan B.
Trump Threatens to Veto Defense Bill Unless Sec. 230 Is Repealed
Report from the Washington Post
In Brief – In a series of late night tweets, President Trump has threatened to veto S. 4049, the Fiscal Year 2021 National Defense Authorization Act (NDAA), unless a provision to repeal of Sec. 230 of the Communications Decency Act is added. Sec. 230 allows web sites to take down or otherwise moderate user-generated content (posts, links, reviews, comments, videos, etc.) without becoming liable for all user posted content. Many conservatives have accused social media companies of ideological bias and using content moderation to penalize conservatives.
Context – While both Democrats and Republicans have been critical of the social media giants over content moderation, with both President Trump and President-elect Biden calling for its repeal, there is little agreement on the actual problem. While Republicans charge anti-conservative bias, Democrats roundly reject the charge. Democrats often condemn the platforms for allowing too much hate speech and misinformation to circulate, calling for more action against content Republicans are defending. In terms of the defense bills, the key point to understand with this veto threat is that the NDAA, an “authorizing bill”, does not provide the funds for the defense agencies. Instead, the authorizing bill provides the most specific direction on how federal funds are to be spent, as well as nearly all the programmatic detail. The money is provided by an “appropriations bill”. If the President vetoed the NDAA, there is no “shutdown” of the Defense Department. Defense funding is currently provided by a general “continuing resolution” governing ALL federal agencies, because none of the federal appropriations bills have been enacted into law for FY 2021. That funding bill expires on December 11. If you hear about efforts to avert a shutdown, it is focused on that process. By the way, if there is a federal government “shutdown”, the defense agencies all continue to operate.
Digital Marketers File UK Competition Complaint to Delay Google “Privacy” Initiatives
Report from Reuters
In Brief – Digital marketing companies and online publishers have filed a complaint with the UK Competition and Markets Authority (CMA), the country’s competition regulator, asking for the CMA to pause Google’s plan to change its Chrome browser in a way the digital giant says will improve user privacy but which the companies claim will unfairly disadvantage smaller competitors. Google announced its “privacy sandbox” earlier this year, including a plan to phase out third-party cookies that help advertisers target customers with ads for websites they previously visited. That change would match browsers from Microsoft, Apple and Mozilla, and is supported by many privacy advocates, but critics note that Chrome has a disproportionate 70% market share and Google is also a digital advertising giant. They claim that Google has access to many alternative tools to determine the online activities of users to support its advertising business, but smaller digital marketing companies could lose up to 75% of their revenue.
Context – Google’s plan to end third-party cookies is another case of a platform giant being accused of using privacy to justify anticompetitive conduct. Google’s plan to move domain name system (DNS) queries to encrypted HTTPS protocol, a change supported by many privacy advocates, has led to complaints from major network providers claiming it will undermine their efforts to grow digital advertising businesses. Apple uses privacy to justify their plan to require all third-party apps to get opt-in permission to collect their advertising identifier, which is used to deliver targeted ads, but they face an antitrust suit in France filed by advertising companies and online publishers. Facebook faced a class action antitrust suit in January from app developers banned from the platform for terms of service violations that the plaintiffs argued were based on anticompetitive motivations, and the legal standoff between LinkedIn and hiQ Labs also raises issues of privacy being used to justify allegedly anticompetitive conduct.
Apple Further Extends Payments Compromise for Digital Class & Events Providers
Report from CNBC
In Brief – Under pressure from app developers and government officials regarding its App Store policies and fees, Apple has made a further concession regarding the mandatory use of its payments service, this time extending through June of 2021 an exemption for apps offering digital classes or live events. Apple temporarily changed their payments policy for live classes in September under pressure from Facebook, who had rolled out a live events service billed as pandemic relief for in-person service providers injured by the pandemic and related shutdowns. Facebook announced that it would offer a live events service with Facebook payments without any fees through the end of August 2021, a plan that Apple initially rejected as violating its App Store payments rules. When Apple relented their exception allowing alternate payments services for live classes was for just three months.
Context – App store policies are facing scrutiny globally, and heat is being turned up quickly. There are millions of app developers dispersed globally but just two giant mobile platforms (outside China). Large companies like Epic and Spotify are investing in legal, PR and regulatory campaigns to change platform policies and limit fees. Apple and Google both often charge 30%, but they otherwise have very different models. Apple’s “walled garden”, which places them more squarely in control of apps in the name of user experience, has made them more the focus with US and EU regulators, and seen them criticized by giants like Microsoft and Facebook. In its most aggressive play to focus attention on the largest app businesses, Apple has announced that developers earning less than $1 million in app revenues, who make up 98% of developers but just 5% of app revenues, will be charged only 15% in 2021 as a small business incentive. Google with a more open system but similar fee levels for many digital services apps offered in the Play Store is more in focus in markets like South Korea and India.